Echo loses on slots, posts a dip in profit

Date: February 22 2013

Eli Greenblat

ECHO Entertainment, which is locked in a turf war with James Packer over the construction of a second casino in Sydney, has posted a dip in half-year net profit after pumping $870 million into touching up its flagship Sydney casino.

The earnings downturn was driven by higher depreciation and amortisation costs flowing from investment in The Star, and a lower effective tax rate the previous year.

Echo said overall revenue at The Star was up 15 per cent for the first half, as more patrons visited the refurbished centre, punted and dined, but the improved sales result was not broad-based with tables, VIP and non-gaming performing well but slots disappointingly soft.

''The focus for the second half is to drive consistent and continued improvement in the operational performance of the assets, and a stronger return on investment in The Star,'' said chief executive John Redmond, who started in January.

The slots games business, which is high margin, did not undertake a new marketing program as the refurbishment of The Star was rolled out, with management distracted by the threat from Mr Packer. ''What you will typically find is that the [slots] marketing programs that were developed some time ago … have not been adjusted or changed to react to the completion of the project itself, so we are starting to evolve those marketing plans and will hope to roll out a new program before the end of the financial year.''

He said the casino also lost slots patrons to RSLs, and Echo hoped to win back those customers with new rewards programs.

Echo reported a 5.3 per cent fall in first half net profit to $66.5 million, as revenue rose 4.2 per cent to $912.6 million - with its Queensland casinos suffering from soft consumer sentiment. Earnings per share were 17.3 per cent weaker at 8.1¢.

The company declared a fully franked interim dividend of 4¢ per share, to be paid on March 27.

It comes as Echo mulls a big capital spend in Queensland to create a new integrated casino resort in Brisbane and shift its existing Treasury casino, which could cost a combined $1 billion. Capacity constraints at its Brisbane centre were also blamed for the poor trading during the half.

Mr Redmond said he would only recommend a big redevelopment of its Brisbane sites if it would hit returns of at least 15 per cent.

Meanwhile, Echo is fending off efforts by Mr Packer's Crown Casino to build a rival $1 billion hotel and VIP casino at Barangaroo. Complicating matters, Crown is sitting on a 10 per cent stake in Echo. Shares in Echo ended down 1¢ at $3.47.

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